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Resistance from federal housing officials nearly scuttled the residential market for property assessed clean energy (PACE) financing, as cities and counties across the country shuttered programs. But a few jurisdictions bucked the trend. One outlier is the HERO (Home Energy Retrofit Opportunity) program, which appears to be thriving in western Riverside County, California.

I have written frequently at this blog about PACE financing. My posts have focused, for instance, on the launch of commercial PACE programs in California, Connecticut, and South Florida.

Such reporting is valuable, I hope, in keeping readers up to date on the nascent but fast-maturing PACE market. The HERO program, which launched in December 2011, can claim the distinction of being the rare PACE program that has successfully funded projects. Renovate America, which runs the HERO program for the Western Riverside Council of Governments (WRCOG), announced earlier this month the approval of more than $50 million for residential energy retrofits, with half of that funding approved since July.

According to PACENow, an advocacy group, 2,000 homeowners have applied for HERO PACE financing; of these, 1,250 have met the program’s underwriting criteria. Some 300 residential projects worth $5 million have been completed. Two-thirds of the projects have funded energy efficiency measures; the most popular improvements: upgraded HVAC units (30%), windows and doors (24%), and insulation (6%). The balance of projects funded is largely rooftop photovoltaic systems.

The HERO program for the commercial sector has been slower to complete deals. PACENow reported that a $700,000 project was slated to close in August, with projects valued at $20 million more expected to close in the coming year. WRCOG Executive Director Rick Bishop told the Riverside Press-Enterprise last month that private lenders have committed $225 million to finance commercial HERO projects.

The design of PACE programs varies widely, but the basic premise is the same. A residential or commercial property owner is able to tap low-interest financing to fund energy efficiency and renewable energy upgrades without the burden of upfront costs. An audit is often undertaken to identify energy- and water-saving opportunities.

The HERO program, which launched in December 2011, can claim the distinction of being the rare PACE program that has successfully funded projects. Credit: WRCOG

Property owners wishing to pursue PACE financing then enter into an assessment contract, tied to the property, which releases the project funding; in the case of the HERO program, the homeowner enters into an agreement with Renovate America, which also funds the program. The contract stipulates that the property owner agrees to repay the cost of the improvements through an annual property tax assessment lasting up to 20 years. If a building is sold or transferred, the PACE lien remains tied to the property.

The HERO program relies on contractors to sell PACE financing to property owners. More than 400 contractors are now registered. WRCOG expects the HERO program will create up to 4,000 jobs in the region. Reporting by the Riverside Press-Enterprise’s Debra Gruszecki revealed that contractors are seeing a boost in business and adding jobs.

“It’s had an extreme impact on business,’’ Douglas McMillan, general manager of Riverside-based California Showcase Construction, told Gruszecki. “I’d say 75 percent of our work is HERO at this point; business has been so good, we’ve hired more people — seven, so far.”

Another small business owner, Mike Mohr of Mohr Power Solar said: “HERO has definitely put more people to work. Our business is up 10 to 15 percent.’’ Mohr said the extra business has preserved jobs at his company that would have been lost.

The HERO program is able to close residential PACE deals, despite objections by the Federal Housing Finance Agency (FHFA), because it requires property owners to meet rigorous Department of Energy lending guidelines. The property owner, for instance, must be current with property taxes and mortgage payments and have at least 10% equity in their home.

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